27 August 2009

Zimbabwe: Analysts Scratch Heads over Trend

Financial results trickled into the market this week, but analysts say the performance so far is nothing to write home about yet. And they see the trend continuing.

BancABC was weighed down by its Zimbabwean operation which posted a loss while NMB also sang the blues with another loss this year.

BancABC Zimbabwe, the regional group's operation, made a loss of US$3 million due to the decrease in property prices in the first half of the year.

But analysts say that once banks are recapitalised, the outlook could change by the end of the year and possibly rise out of a loss position.

An analyst said: "the big three banks could surprise the market with profits in this environment judging by their deposits base but we can leave room for disappointment too from them.

"But when it comes to recapitalisation, we expect these banks to comply without any hurdles unlike the smaller ones."

"Nothing exciting will come this season. I wouldn't be surprised if these companies made losses again in the last half. The outlook is still very hazy. In fact, I don't think they will be any real changes," an analyst said.

Stanbic -- one of the elite banks -- recorded a net interest income of US$487 417 and an after tax profit of US347 595 during the first half of the year buoyed by growth in non-interest revenue that contributed 92%.

NMB reported attributable profit of US$1 733 943 while operating expenses stood at US$1,8 million driven largely by staff, IT maintenance costs and property expenses.

The market will today look at CBZ -- a traditional market favourite for some excitement.

Insurance sector--a traditional market turnoff -- has conformed to analysts expectations as a dead sector at least judging by short-term insurance provider, Nicoz Diamond, which posted far from tickling numbers.

Analysts say short term insurance could be better but life insurance is not going "nowhere."

"There is little to nothing insurance. Insurance businesses are the last ones in line to improve if the economy takes a turn for the better," analysts said.

Others such a Pearl Properties made losses but management at the property concern say they could make money by year-end.

Pearl Properties wrote off 20% of its property portfolio to US$69 million after marking it up to US$88m in last year. When the company came to the market with its initial public offer (IPO) in 2007, the same portfolio was valued at US$32 million.

But management took some flak from analysts who queried management for allegedly understating the extent of value decline of property prices arguing that the overall property values in the sector declined by at least 40% opposed to Pearl's conservative 20%.

Analysts cannot make heads or tails of what to expect this reporting season from interim financials because there is no discernible trend in terms of performance post dollarisation.

And the last financials on the market did not help at all, according to analysts, because the performance was not an actual reflection of companies' financial performance post dollarisation, but mere numbers derived from an implied exchange rate.

Analysts believe that only after a full financial year will a discernable trend be established saying for now its difficult to anticipate anything from companies.

An analysts said: "It's difficult to say what to expect this year. Basically companies are coming from a position where they where trading in a different operating environment in era of Zim dollars characterised by a lot of controls in the form of price controls and exchange controls among other impediments. The dollarisation of the economy, although a good thing, has not benefited businesses a lot.

For instance, retailers have a potential to lift turnover and margins but can't because disposable incomes have not yet improved.

"But a year from now, maybe, I will be able to say really where a company is coming from and where it is going," analyst said.

Retailers could have cashed in the dollarisation but continued absence of disposable incomes has not helped the sector.

Mobile operator Econet Wireless and beer and beverage maker Delta Corporation could, however, excite the market judging by their trade updates recently.

Econet said its revenue base had continued to grow in past months while Delta told the market in April that beer sales would continue to rise.

Econet Wireless, the country's largest telecoms operator, reported a strong improvement in performance due to its accelerated drive to sign on new subscribers.

While full disclosure would only be given at the end of the half-year to August, CEO Douglas Mboweni reported stronger than expected airtime usage. This he said drove monthly turnover significantly above the January and February levels. With the accelerated growth in subscriber numbers, Econet hopes turnover will continue to grow.

Delta sold a total 55 000 hectolitres of booze worth US$16 million in February consumed but sales remained steady the following month as the company achieved sales of US$16 million in March while 60 000 hectolitres were consumed in the same period.

Delta CEO Joe Mutizwa believes the group could have sold 25% more in April had the group's production plants been "more operational" and the company had not faced supply constraints. This would have seen Delta's sales rise to around US$30 million if the company had more capacity.

Banks which are traditionally market favourites are struggling to raise capital in line with monetary authorities' demands and this is another sector analysts are not upbeat about this time around.

Generally this year's reporting season could turn out into a big yawn for financial analysts until a couple of companies make a takeover bid, IPO, merger or some such other business move which could tickle a bored market.

But another analyst says because businesses can now plan, the market could see companies making money and sustainably continue doing so by next year.

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